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Donetsk’s IT sector was growing before the war, with the potential to lead the region into a postindustrial economy

A building in Ilovaisk on Nov.16. The town on the outskirts of Donetsk was severely damaged in fighting between the Ukrainian army and pro-Russian separatist fighters. Dmitry Beliakov for Al Jazeera America

Editor's note: This is the second in a three-part series examining the political and humanitarian situation in east Ukraine. Read the first part, on daily life in Donetsk, here, and the third part, on leadership confusion in Luhansk and Donetsk, here.

DONETSK, Ukraine — When the fighting between pro-Russian rebels and Ukrainian forces moved closer to Donetsk’s city limits in June, one of the region’s leading software development companies made the difficult decision to relocate its 50 staffers to a safer city to wait out the war.

The company, Binary Studio, chose the western city of Uzhgorod, about 900 miles west of Donetsk in the Carpathian Mountains. At an average age of 28, the company’s employees were young and mobile and saw the temporary move as an opportunity to continue working while exploring Ukraine’s mountains on the weekends.

“We all wanted to go back to Donetsk as soon as the situation improved there,” said Kateryna Potanina, 24, Binary’s chief operating officer, in a phone interview. “But it was nice to feel safe and be far from what was happening in the east.”

It’s now been five months since they set up shop in the west, and the move no longer feels temporary. The eastern conflict has claimed more than 4,300 lives, including at least 1,000 since a Sept. 5 cease-fire. The armed rebels of the self-declared Donetsk People’s Republic held their own elections on Nov. 2, and Ukrainian President Petro Poroshenko has retaliated by cutting off state budget and banking services to the rebel-held territories.

A railway bridge blown up by the separatists blocks the highway from Donetsk to Slovyansk. Dmitry Beliakov for Al Jazeera America

A Soviet-era mosaic romanticizing work of coal-miners stands on the highway to Donetsk.Dmitry Beliakov for Al Jazeera America

Binary Studio’s workers are part of what is estimated to be more than 1 million people who have fled the eastern regions since April, according to the United Nations, when pro-Russian rebels took over government buildings and declared independence from the Ukrainian central government in Kiev across the Donetsk and Luhansk regions.

The exodus of young, innovative companies and their 20-something employees has the worrying signs of a permanent brain drain from Donetsk, a city that once had a population of 1 million and potential for leading the transformation of the region into a postindustrial economy.

Ukraine’s IT sector has been a shining light in the country’s struggling economy during the last several years, as international clients tap into the technical expertise and low labor costs in the country. Ukraine's IT sector was worth $5 billion in 2013, according to AVentures Capitals, a funding firm focused on Ukraine and Russia. Outsourcing in Ukraine brought in about $2 billion in revenue, with more than 50,000 people working in the field, according to AVentures’ data.

While Kiev and the western city of Lviv started out as the hubs of software development outsourcing, Donetsk was catching up, with several IT companies opening that specialized in outsourcing. Almost all of them have relocated their offices outside the rebel-held territories.

Eastern evacuees left in different waves and for different reasons. Some left because they supported the Maidan demonstrations that ousted the Donetsk native and Kremlin-favored President Viktor Yanukovych in late February. Many were artists, writers and the creative elite, who were targeted and harassed by the pro-Russian rebels for their Ukrainian views.

Middle-class business leaders made up a second wave, taking their business with them as tensions in the east jeopardized their profitability.

The majority of the evacuees left their homes behind to seek safety when their villages and towns became the front line of a military conflict that has seen both sides using heavy artillery in civilian areas. In many rural parts of the region, entire streets and neighborhoods were reduced to rubble.

“For intelligent businesses, there is nothing left in Donetsk now,” said Vladimir Voronov, 38, a Donetsk native and founder of an international branding agency that bears his name. He left Donetsk in April and took his wife and son to Kiev. “At this point, there is only a market for basic needs, such as food and shelter. There’s no opportunity for other businesses,” he said.

In the mining city of Shakhtyorsk, a statue of Lenin was damaged by a heavy-caliber bullet.Dmitry Beliakov for Al Jazeera America

Pensioners queue for humanitarian aid in Shakhtyorsk. Most of eastern Ukraine's young and affluent have departed because of the fighting. Only the old and poor remain.Dmitry Beliakov for Al Jazeera America

The fragile cease-fire hasn’t moved the eastern conflict much closer to a peaceful solution. There are now fears of a renewed military offensive as Kiev and NATO accuse Russia of sending in troops and providing technical assistance to the rebels. Moscow has denied that it has given anything more than moral support to the separatists.

The region now seems on the path to a frozen conflict, in which the 3 million remaining residents are stuck in the middle as the rebel leaders and the Ukrainian government harden their positions. Meanwhile, the regional industrial economy has been devastated by the war. Businesses are closed, many mines are inoperable, and the region’s unemployment has skyrocketed.

Under these conditions, it looks unlikely that young innovators like Potanina will ever be lured back to their former home city, said Alex Ryabchyn, a former professor of economics at Donetsk National University.

“The rebels made a mistake by turning against the intellectual class, the English speakers and the creative communities and playing up on the idea of the communist proletariat,” he said.

When the rebels took over the city and regional government buildings in April, they claimed they were doing to so to protect the industrialized, Russian-speaking east from an illegal junta of Ukrainian nationalists trying to force the country of 46 million toward Western Europe. The eastern economy was oriented toward the Russian market. Russian-speaking eastern Ukrainians still fondly remember the days of the Soviet Union, when steelworkers and miners were hailed as heroes of communism.

So while the Maidan revolution awakened a young generation of Ukrainians who grew up with the Internet and social media, it frightened much of an older generation who feared instability would come with reorienting their economy toward Europe.

As a result, the brain drain in Ukraine resembled a generational split, with much of the young leaving the area.

The brain drain threat was compounded last month, when the Ukrainian government said it would transfer the professors and students from Donetsk National University to the state university in Vinnitsa, about 500 miles to the west. Of the 8,000 matriculated students, more than 5,500 have registered for the transfer. About 63 percent of the professors agreed to be moved, according to Inna Sovsun, the first deputy minister of Ukraine’s Ministry of Education and Science.

The new flag of Donetsk National University hangs from one of the institution’s buildings. Dmitry Beliakov for Al Jazeera America

Sergey Baryshnikov is the acting head of Donetsk National University. Dmitry Beliakov for Al Jazeera America

The rebel government quickly took over the university, changing its flag and curriculum to “reflect the students’ Russian ethnicity,” said acting director Sergei Baryshnikov. The students who decided to stay in Donetsk would graduate with a diploma that he said he was confident would be recognized by the Russian Federation.

Sovsun said the Ukrainian ministry would not recognize diplomas from the rebel-controlled Donetsk University. “Eventually these students will be Russian citizens. I am sure of it,” he said. “And their futures will have many more opportunities than they ever would have had in Ukraine.”

The Donetsk People’s Republic’s minister of education and science, Igor Kostenok, said the rebel territories were seeing a brain drain after many people left during the fighting. But that didn’t mean the region was facing a labor force vacuum, he added.

“For every position that was left open, there are new people who are ready to replace them,” he said. “Donetsk is now refreshing and rejuvenating itself this way.”

Ryabchyn said that was likely a false sense of reality. “In people’s minds, that works fine. But the economy works very differently,” he said.

For Potanina, the possibility of returning to Donetsk anytime soon seems very small. Her parents are still in the region, and she worries about their safety and how they will survive now that there is a serious banking crisis in the rebel-held territories. Her father is a miner who hasn’t been paid in several months because the mine is closed.

Perhaps blame it on youthful optimism, but Binary Studio’s employees “consider the relocation an opportunity and new beginning,” she said.

“What I mean is that we are optimistic and we keep growing. I know that we will cope with that.”

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